GERMANY – Germany’s occupational pensions association Aba has come out against the proliferation of defined contribution plans in Germany, arguing that DC creates new risks for employers and is ineffective.

Although German occupational pension schemes have traditionally been defined benefit in nature, more and more companies are switching to DC. More prominent examples include the steel giant ThyssenKrupp, the truck and engineering group MAN and the printing machinery maker HeidelbergGruppe.

Aba managing director Klaus Stiefermann warns that German employers are miscalculating if they believe that the switch to DC from DB is the “best solution”.

“The main problem with DC is that while the investment risk is passed onto the employee, an employer in Germany is confronted with new risks, namely those associated with choosing the right scheme and adequately advising employees,” Stiefermann told IPE from Heidelberg.

He cited cases in the UK and the US when employers were made legally responsible for the DC schemes they choose and the quality of advice they provided.

Stiefermann said other misconceptions were that they helped the spread of occupational pensions and ensured a higher benefit. “The example of the US shows that this has not been the case,” he said.

Aba represents employers who offer occupational pensions in five different administrative forms: Pensionskassen (traditional pension funds), Direktversicherungen (direct insurance), Direktzusagen (book reserves), Pensionsfonds (equity-oriented pension funds) and Unterstützungskassen (support funds).

At last count, there were €366bn in German occupational pension assets, 59% of which were held in the Direktzusage.